On 18 September 2019, the Prudential Regulation Authority (the “PRA”) published Consultation Paper (“CP”) 22/19, which details its proposed expectations of firms investing in accordance with the Prudent Person Principle (“PPP”).
Background
The PPP can be found in Chapters 2 to 5 of the Investments Part of the PRA Rulebook, which transposes Article 132 of the Solvency II Directive (2009/138/EC). The PPP sets objective standards for prudent investment which, when applied to a particular firm’s circumstances, are likely to allow for a range of reasonable investment strategies.
In addition, the PPP embeds investment activity within the wider qualitative risk management requirements placed on firms under Solvency II. The PPP requires firms to have adequate governance and risk management in place and requires investment decisions to be made in the context of a firm’s broader framework for enterprise risk management.
Proposals
CP 22/19 draws on the PRA’s recent discussions with industry, in the light of which the PRA has identified certain inconsistencies in the way the PPP is applied by firms. CP 22/19 sets out the PRA’s proposed expectations for the management of investment risk in accordance with the PPP in a draft Supervisory Statement (“SS”). The PRA has noted that it will exercise independent judgement regarding whether a firm is meeting the requisite PPP standards.
Click here for more details of the proposals.